Income Taxes

9 Months Ended

Jun. 29, 2025

Income Tax Disclosure [Abstract]

Income Taxes

Note 3. Income Taxes

For the third quarter of fiscal 2025, we estimate our annual effective income tax rate to be 11% for fiscal 2025, which is lower than the U.S. federal statutory rate, primarily due to a significant portion of our income qualifying for preferential

treatment as foreign-derived intangible income (FDII) at a 13% effective tax rate, which includes certain additional benefits from the requirement to capitalize research and development expenditures for federal income tax purposes and a benefit from our federal research and development tax credit. Our effective tax rate of 10% for the third quarter of fiscal 2025 was lower than our estimated annual effective tax rate, primarily due to net discrete tax benefits realized in the third quarter of fiscal 2025.

On July 4, 2025, tax reform legislation included in the One Big Beautiful Bill Act (OBBB) was enacted in the United States. The impact of the OBBB is excluded from our estimated annual effective tax rate and provision for income taxes for the third quarter of fiscal 2025 as it is a nonrecognized subsequent event. The OBBB includes significant corporate tax reforms, including the permanent reinstatement of deducting domestic research and development expenditures as incurred beginning in fiscal 2026 (under prior law such expenditures were capitalized and amortized over five years). We expect this change will have a favorable effect on our cash flows from operations due to significantly lower cash tax payments. However, we expect it will adversely affect our total provision for income taxes and results of operations, as these expenditures will no longer result in a deferred tax asset that is established at the statutory rate of 21% rather than the current effective tax rate of 13% after considering the FDII deduction. The legislation also modifies international tax provisions, including changes to the FDII regime. Specifically, it renames FDII as Foreign-Derived Deduction Eligible Income (FDDEI), maintains the current FDDEI effective tax rate of 13% through fiscal 2026 and adjusts the FDDEI effective tax rate to a permanent 14% rate in fiscal 2027 (compared to 16% under prior law).

While we continue to evaluate the impact of these tax law changes, we may be subject to the corporate alternative minimum tax of 15% beginning in fiscal 2026, and we are assessing our ability to realize our existing deferred tax assets. As such, our future provision for income taxes and results of operations may be adversely affected (potentially materially).